1. Creative Exposure
Consulting, LLC
Mission, Business Model, & Strategy

2. Introduction
 Founded in 1983
 Fourth largest retailer in the U.S.
 As of 2010, 573 warehouses in 40 states and 7 countries
 Fastest growing company in the history among
American businesses
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3. Costco
 Only company to achieve $6 billion in sales from zero in six
years
 Founder Jim Sinegal coined as the inventor of the wholesale
Club concept
 Philosophy is to “keep members coming in to shop by wowing
them with low prices.”
 Does not engage in extensive advertisements or sale
campaigns
 Five Guiding Principles
 Obey the law
 Take care of members
 Take care of employees
 Respect suppliers
 Reward shareholders
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4. Product Diversification
 Core - Costco Wholesale
 Warehouse Clubs and Superstores
 Premium private-label products
 Core - Costco Business Centers
 Cross business strategic fit: formula 1+1=3
 Specialty - Consumer Services
 Travel
 Optical
 Automotive
 Financial Services
 401(K)
 Loans
 Insurance
 Pharmacy
 Recycle electronics
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5. Business Model
 Low Cost/Low Price
Limited selection of top quality merchandise
Wide range merchandise categories
“Treasure Hunt” shopping environment
No frills, self-service warehouse
Rapid inventory turnover
Volume purchasing
Operating efficiencies
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6. Business Model
Low prices Volume purchasing
Limited selection of quality merchandise Efficient distribution
Reduced handling of merchandise
+Wide range of merchandise categories
+No-frills, self-service warehouse
Rapid inventory turnover
Operating efficiencies
Rapid inventory turnover
+Operating efficiencies Plus Membership Fees
Profit at a low gross margin (8%-14%)
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7. Business Model Analysis
 Is Costco’s business model appealing?
 Evaluation matrix based on:
 Customer satisfaction – Ranked chief among competitors
 Out-competing rivals – Ranked 4th among competitors
 Response to changing market conditions – One stop shop trends,
Unique rotating merchandise, understanding affluent shopper
spending behavior
 Achieving financial/strategic objectives – Progressively
demonstrates membership growth and net gains each year
 Comparison to competitors – Differentiated, Industry leader
 Are Costco’s prices too low?
 Not as of today, but could prove to be a problem in the future,
especially in foreign markets due to currency value
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8. Competitive Advantage
 Building core competencies and competitive
capabilities
Finding and negotiating bargains
On quality merchandise
Building relationships with
Manufacturers
Suppliers
Ingenuity
Cost cutting
Conservation
 Human Resources
Employing the best talent
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9. Costco vs. Competitors
Last trade: $0.00 $0.00
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10. Costco vs. Wal-Mart
Pricesmart Inc.
Higher P
Operating Margin
Sam’s
Club
Costco
BJ’s
Lower
Few Many
Number of
Locations
Note: Circles are drawn roughly proportional to the sizes of the club chains based on
revenue
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11. 2008 Performance
FY 2008 Costco vs. Competitors
Net Comparable
Revenue Income Operating Store Sales
Company (Billions) (Billions) Margin (Decline) Locations
Costco $70.9 $1.3 2.7% 6.0% 512
Sam's Club $46.8 N/A 3.4% 4.8% 602
BJ's Wholesale
Club $10.0 $2.3 2.3% 9.4% 180
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12. Rivals’ Next Strategic Moves
 More stores in foreign markets
 Facing market saturation in U.S.
 cannibalization
 Copy Costco
 Sam’s Club opens first Business Centers
 July 22, 2008
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13. SWOT Analysis
Strengths Weaknesses
S  Low Prices W  Burden of high wages
 Strong Brand paid to workers
 CEO’s retirement
 Operating  Low price margins
Efficiency  E-commerce activities
 Exceptional  Small Marketing
Workforce budget compared to
 Strong membership discount retailers and
Opportunities Threats Markets
Super
O  Appeal to
T
 Aggressive price
conscientious shopper competition by rivals
 Expand into foreign
 Political
stable markets
complications in
 Mergers & Acquisitions foreign markets
 Massive supplier pool
 Cannibalization
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14. Strategic Performance
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15. Financial Performance
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16. Acquiring New Members
7.3% increase 1999 & Before
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17. Winning Strategy - YES
Weighted Factors
Factor Strategy/Performance Score/Weight
Well-matched Offensive strategy –Low cost, low 100%/30%
price, First Mover (i.e. Business Center,
Greening Warehouses)
Competitive Advantage Best cost provider—top quality at 100%/30%
lowest price, distribution efficiency,
strategic alliances & partnerships,
ingenuity/innovation via EFIM
technology.
Sustained performance From 2000 – 2004 net sales increased by 100%/40%
45%, 2010 SEC Filings reported net
sales increased 9.1% from the prior year
to $76,255, driven by a 7% increase in
comparable sales, membership fees
increased 8.4%, due to new
membership sign-ups and increased
penetration of the higher-fee Executive
Membership program. Stock price
Performance Total Outstanding performance 100/100
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18. Strategic Issues
Remain focused on core business
Maintain First Mover Status
Increase internationalization
opportunities
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19. Recommendations
 Target Jim Sinegel’s replacement as CEO in an effort to
preserve corporate culture
 Increase efficiency and effectiveness of E-commerce
activities to increase sales in both domestic and foreign
markets
 Acquire BJ in an effort to gain 180 stores and acquire R&D,
talented employees, and loyal customers
 Results warrant…
 Increase market share and business footprint
 Ability to capture new customers resulting in membership growth
 Attain BJ’s competences to streamline processes
 Gain market presence in areas not currently located in(i.e.
clustered club locations)
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20. Recommendations
 Are recommendations aligned with company
growth strategy? Yes
 Sales and Profit Growth Strategy
 Open more new warehouses
 Build an even larger and more fiercely loyal membership
base
 Employ well executed merchandise techniques
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21. Questions
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